German economic growth contracts in Q2 2019, negative growth likely to continue in Q3

The German economy shrank in the June quarter and the soft sentiment data imply negative growth continued in the third quarter as well, which might put the German economy in a recession, noted Nordea Bank in a research.

On a quarter-on-quarter basis, the German economy contracted 0.1 percent. On a year-on-year basis, the economy grew just 0.4 percent. The second quarter contraction of GDP followed an upside surprise of 0.4 percent quarter-on-quarter growth in the first quarter, so as a whole the economy still grew clearly in the first half of 2019.

The German statistical agency commented that positive growth contributions came from household consumption, government expenditure and investment apart from construction. However, net trade weighed in on the growth, with exports falling faster than imports. Employment still rose by 1 percent year-on-year.

The situation appears to be increasingly worrying. Some sentiment indicators such as the Ifo already imply that the economy is in a recession. Leading indicators further imply that while the manufacturing malaise is growing, the outlook for the service sector is increasing as well. The second half of 2019 is expected to be soft, and another contraction in GDP might easily be in the cards in light of the soft sentiment data and intensifying industrial recession.

“We expect the weakness in the German economy to only broaden in the coming quarters. The global uncertainties, such as the trade was and Brexit, will be a continued drag on investment and trade, while the gradually cooling labour market will weaken the momentum of household consumption”, said Nordea Bank.

The deceleration is spreading in Germany, which supports the ECB’s signals that more monetary stimulus would be required.

“We continue to expect the ECB to unveil an entire package of easing measures at the September monetary policy meeting”, added Nordea Bank.